Insights
Target operating model is one of the most used and least understood phrases in business. Everyone agrees they need one, and few agree on what it actually is. Put simply, a target operating model, often shortened to TOM, is a clear description of how an organisation will work in future to deliver its strategy. This guide explains what a good one contains, the mistakes that make them useless, and how to design one that actually changes how the organisation runs.
By Christopher Fagan
A strategy says where a business wants to go. A target operating model says how it will be set up to get there. It describes the future state across the organisation, joining up the parts that are usually designed separately, so that processes, people, technology and data all point the same way. Its value is in that joining up. A TOM that only redraws the org chart, or only picks new systems, is not a target operating model at all.
The test of a good model is that these six things are consistent with each other. A process that the structure cannot support, or a system that the data cannot feed, is a model that will not work in practice.
The first mistake is the paper model, a beautiful document that describes a future nobody knows how to reach. The second is too much detail too early, mapping every process to the last step before the shape is even agreed. The third, and most common, is designing the future state with no credible transition plan, so the organisation admires the target and carries on exactly as before.
Start from the strategy and the small number of things the organisation must be able to do well to deliver it. Design the components together, checking constantly that they fit. Keep the detail proportionate, enough to be clear and to cost, not so much that it becomes an academic exercise. And treat the transition plan as part of the model, not an afterthought, because a target with no route to it is just a wish.
PEF helps organisations design target operating models that are practical and then deliver the change to reach them, through our strategy and people and change practices. Talk to us about the operating model your strategy needs.
A target operating model, or TOM, is a clear description of how an organisation will work in future to deliver its strategy. It joins up processes, people and structure, technology, data, governance and sourcing so they all point the same way.
The test is that the components are consistent with each other. A process the structure cannot support, or a system the data cannot feed, is a model that will not work in practice.
The common failures are the beautiful paper model nobody knows how to reach, too much detail too early, and a future state with no credible transition plan, so the organisation admires the target and carries on as before.
If any of this is live for you right now, the senior people who wrote it are the people you would work with.